The Securities and Exchange Commission is reopening the comment period on two releases, Asset-Backed Securities, Securities Act Release No. 33-9117 (Apr. 7, 2010), 75 FR 23328 (the “2010 ABS Proposing Release”) and Re-Proposal of Shelf Eligibility Conditions for Asset-Backed Securities, Securities Act Release No. 33 - 9244 (July 26, 2011), 76 FR 47948 (the “2011 ABS Re-Proposing Release”). The Commission is re-opening the comment period to permit comment on an approach for the dissemination of potentially sensitive asset-level data to address privacy issues. This approach is discussed in a staff memorandum included in the public comment file. Comments are due on or before March 28, 2014.

This is contrary to expectations that the market would be receiving a fully final rule. We will be distributing details regarding our advocacy strategy in the coming days. Please contact Alyssa.Acevedo@sfindustry.org with any questions.

This afternoon, the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises held a hearing on “The Dodd-Frank Act’s Impact on Asset-Backed Securities.” Neil Weidner, Partner at Cadwalader, Wickersham and Taft, testified on behalf of the Structured Finance Industry Group (SFIG). Mr. Weidner’s testimony marks SFIG’s first appearance before the subcommittee. While today’s hearing focuses on Dodd-Frank’s effect on the entire ABS market, SFIG’s testimony focuses on the collateralized loan obligation (CLO) industry.

The hearing comes as a follow-up to a full House Financial Services Committee two-part hearing series designed to examine the effects of the Volcker Rule on job creators. During the second hearing on February 5th, members of Congress from both parties asked regulators to take action to address the unintended consequences of the Volcker Rule. In response to these questions the regulators, including the Securities and Exchange Commission, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Commodities Futures Trading Commission have formed a "regulatory working group" to address issues identified as problem areas. Further, Federal Reserve Governor Daniel Troll said, “CLOs are at the top of the list of issues that the regulatory working group is going to address.” In response, Congressmen Andy Barr (R-KY) and Steve Stivers (R-OH) urged regulators to work towards a solution and “consider grandfathering the legacy CLOs” as they did with collateralized debt obligations backed by trust preferred securities.

Importantly, the effort to find a solution has been bipartisan in nature. On February 12th, House Financial Services Ranking Member Maxine Waters (D-CA), Congresswoman Carolyn Maloney (D-NY) and 15 other Democrats sent a letter to the regulators. The letter expressed their opinion that the ability to remove an investment manager does not trigger an “ownership interest” in a CLO, which would thus trigger the Volcker Rule. On the Republican side, the House Financial Services Subcommittee released a legislative “discussion draft” that would codify the “ownership interest” in a CLO that both parties have raised to the regulators.

Mr. Weidner, on behalf of SFIG, testified to the consequences of not finding an immediate solution for the CLO market to the Volcker Rule, to the long term ramifications of the proposed risk retention rules on the viability of the CLO market, and on the proposed legislative fix. In conjunction with this testimony, SFIG continues to work towards developing bipartisan support for a fix for the CLO marketplace through advocacy efforts before both Congress and the regulators to find solutions to create a well-regulated and liquid marketplace.

A webcast of the hearing can be found here. Mr. Weidner’s testimony can be found here.

REGULATOR MEETING REGARDING PARTICIPATIONS

On February 20, 2014, SFIG members and staff met with regulators from the Federal Reserve Board, the Federal Deposit and Insurance Corporation, the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Housing Finance Administration and the United States Department of Housing and Urban Development to discuss participations as a form of risk retention. The meeting focused on providing more details regarding the participations section of the SFIG risk retention comment letter submitted on October 30, 2013. Please contact Sairah.Burki@sfindustry.orgwith any questions.

REGULATOR MEETING REGARDING VOLCKER RULE

On February 25, 2014, SFIG staff and mambers, the Loan Syndications and Trade Association, the Securities Industry and Financial Markets Association, the American Bankers Association, and the Financial Services Roundtable met with regulators from the Federal Reserve Board, the Federal Deposit and Insurance Corporation, the Securities and Exchange Commission, and the Office of the Comptroller of the Currency for further discussions regarding the Volcker Rule and the collateralized loan obligations market. The need for, at the very least, grandfathering of legacy deals was highlighted, as well as the need for greater clarification of the definition of “ownership interests.” Please contact Sairah.Burki@sfindustry.org with any questions.

SFIG CANADIAN SYMPOSIUM

SFIG is pleased to announce our Canadian Symposium, which will be held on April 15th at the offices of McCarthy Tétrault LLP, located at 66 Wellington Street West #5300 in Toronto. Please save the date for this event. Further details will follow soon.

If you would like to participate in the work SFIG is undertaking through our committees as highlighted below, please e-mail Committees@sfindustry.org. For specific inquiries on any of SFIG’s advocacy efforts, please contact the staff member listed for the related project.

Project RMBS 3.0 is holding full Working Group calls beginning next week. The Working Groups will further develop the project agenda towork towards restoring private capital back into the market by providing effective recommendations on issues related to representations and warranties. The project is organized into three subcommittees: 1) Representations, Warranties and Repurchase Enforcement; 2) Due Diligence/Loan Review, Data and Disclosure; and 3) Role of Trustees and Bondholder Communications. Please see the SFIG Calendar for additional information on the Project RMBS 3.0 Working Group calls. Please contact Mary.Robinson@sfindustry.org with any additional questions on Project RMBS 3.0.

SFIG’s GSE Reform Subcommittee continues its work on formulating a comprehensive policy recommendation that will form the basis for SFIG’s position as Congress moves forward with Housing Finance Reform. Last week, the full RMBS Committee adopted preliminary policy positions on the TBA Market and co-operatives. This week the full RMBS Committee will focus on the last two topics of credit risk transfer and transition from existing state to a future state. As SFIG continues to work on these issues, we will engage Members of Congress to ensure its policy recommendations are considered in both the House and Senate. If you would like to learn more about SFIG’s emerging views on GSE Reform, please contact Amanda.Bateman@sfindustry.org.

SFIG’s Mortgage Loan-Level Disclosure Subcommittee has reviewed and developed additional data elements for potential disclosure. SFIG will use this work as a basis of discussions and correspondence with the Securities and Exchange Commission on the mortgage aspects of Regulation AB II. SFIG continues to have weekly Mortgage Industry Standards Maintenance Organization calls to go through data elements that lenders should deliver in securitizations. Please contact Alyssa.Acevedo@sfindustry.org for additional information on SFIG’s work on this topic.

SFIG is working with the Global Financial Markets Association (GFMA), Institute for International Finance (IIF), and Commercial Real Estate Finance Council (CREFC) on a response to Basel’s Second Consultative Document, Revisions to the Securitization Framework. Conference calls are being held weekly with GFMA, IIF and CREFC. SFIG’s work on this project is being undertaken through the Regulatory Capital and Liquidity Committee. Please contact Amanda.Bateman@sfindustry.org for additional information.

SFIG is continuing to engage with regulators and legislators on our concerns regarding the Liquidity Coverage Ratioproposal. Please contact Alyssa.Acevedo@sfindustry.org with your questions or comments.

The Volcker Task Force is working with the asset class committees to determine key issues and need for interpretative guidance regarding the Volcker Rule. Please contact Amanda.Bateman@sfindustry.org for additional information on the Volcker Task Force.

The Regulatory Capital and Liquidity Committee will hold a kick-off call on Friday, February 28, 2014 to discuss the Basel Net Stable Funding Ratio proposal. Please see the SFIG Calendar for additional information on how to participate in the NSFR Working Group Call. If you have additional questions on the NSFR proposal or the related Working Group, please email Mary.Robinson@sfindustry.org.

The Risk Retention Committee is continuing to follow up with regulators on risk retention questions across asset classes. Please email Alyssa.Acevedo@sfindustry.org with any questions.

SFIG is continuing to build membership for its Chinese Market Committee among its members and is currently looking to establish committee chairs as well. If you would like more information on SFIG’s work with respect to Chinese securitization, please contact Alyssa.Acevedo@sfindustry.org.

SFIG has launched its initiative to provide critically needed input for the Financial Stability Board’s “Shadow Banking” project. For more information on SFIG’s work on Shadow Banking, please contact Amanda.Bateman@sfindustry.org.

“We also need to finally and firmly address the conflicts of interest in asset-backed securitizations and the provision of credit ratings.

We should move carefully but quickly to finish these rules. And if a rule is rejected by a Court, we should dust ourselves off, make the rule better, and finish it. We should not be intimidated into backing off our obligation to implement the law. We should not be leaving any of our statutorily required rulemakings behind—even those that some of us may not like.”

The “Franken Amendment” of the Dodd-Frank Act required the SEC to carry out a study of the credit rating process for structured finance products, and the feasibility of establishing a system in which a self-regulatory organization assigns rating agencies to determine the credit ratings of structured finance products. In December 2012, the SEC released its required study into the conflicts of interest inherent in the initial ratings of structured products. The study examined different solutions for assigning credit ratings but did not recommend a specific resolution.

However, at this point, the SEC has not moved forward with a process to change the current system. That said, Commissioner Stein’s comments may display increased interest in examining the credit-rating process for structured finance.

On February 21, 2014, the Federal Reserve Board (Federal Reserve) and the Office of the Comptroller of the Currency, (collectively, the Agencies) permitted certain banking organizations to begin using an additional approach to determine their risk-based capital requirements.

Under the Agencies' "Advanced Approaches" capital framework, which implements standards developed by the Basel Committee on Banking Supervision, firms must meet specific risk measurement and management criteria when calculating their risk-based capital requirements. The framework applies to large, internationally active banking organizations—generally those with at least $250 billion in total consolidated assets or at least $10 billion in total on-balance sheet foreign exposure—and includes the depository institution subsidiaries of those firms. Before a banking organization may use the Advanced Approaches framework to determine its risk-based capital requirements, it must conduct a satisfactory trial, or a "parallel run," using this framework. Under the supervision of its regulator, a firm must show it can comply with the framework during the parallel run period for at least four consecutive calendar quarters using risk-measurement and risk-management systems that adhere to the Advanced Approaches framework.

Eight bank holding companies, eight national banks, and four state member banks have completed their parallel run: The Bank of New York Mellon Corporation, the Bank of New York Mellon, and BNY Mellon National Association; Citigroup Inc. and Citibank, NA; The Goldman Sachs Group, Inc. and Goldman Sachs Bank USA; JPMorgan Chase & Co., JPMorgan Chase Bank, NA, Chase Bank USA National Association, and JPMorgan Bank and Trust Company, National Association; Morgan Stanley, Morgan Stanley Bank, NA, and Morgan Stanley Private Bank, NA; Northern Trust Corporation and The Northern Trust Company; State Street Corporation and State Street Bank and Trust Company; and U.S. Bancorp and U.S. Bank National Association. These firms will use the Advanced Approaches framework to calculate and publicly disclose their risk-based capital ratios beginning with the second quarter of 2014. Under the capital rules finalized by U.S. regulators in July 2013, these firms must meet the minimum risk-based capital ratios under both the Advanced Approaches and the generally applicable risk-based capital frameworks.

The Federal Reserve also issued a final rule clarifying that bank holding companies using the Advanced Approaches framework that will incorporate those changes into the capital planning and stress testing cycles that begin October 1, 2015. The Federal Reserve previously adopted two interim final rules requiring firms to incorporate the Advanced Approaches framework into their capital planning and stress testing cycles that will begin October 1, 2014. The final rule provides the Federal Reserve and the institutions additional time to integrate the Advanced Approaches framework into their respective stress testing and capital planning processes.

CHAIRMAN’S ADDRESS AT SEC SPEAKS 2014

On February 21, 2014, Chair Mary Jo White highlighted several key initiatives for the SEC in her Chairman’s Address at SEC Speaks 2014. She noted that the Securities and Exchange Commission (SEC) has significantly expanded their responsibilities and rulemaking agenda, with nearly 100 new rulemaking mandates resulting from the Dodd-Frank and JOBS Act. White also emphasized the critical initiatives for the SEC which include: intensifying consideration of the role and duties of investment advisers and dealers; enhancing investor protection; increasing focus on the fixed income market; furthering progress on credit rating agency reform; and increasing oversight on broker-dealers and providing more vigorous protections for customer assets. Also on the Chairman’s agenda was prioritizing the SEC’s review of equity market structure and the implementation of the Consolidated Audit Trail Rule, which enhances the ability of the regulators to monitor and analyze the equity markets.

In a letter to banking regulators, Representative Maxine Waters (D-CA), Ranking Member on the House Financial Services Committee, asked for scrutiny of the sale of billions of dollars of mortgage-servicing rights to specialty servicers. In the letter, Congresswoman Waters asked Thomas J. Curry, Comptroller of the Currency, among others, to review such transactions. She wrote that greater attention was needed to “ensure that these nonbank servicers have the operational capacity to manage the increased volume.” Benjamin Lawsky, New York’s top banking regulator, had similar concerns when he halted a servicing transfer last week of about $39 million in servicing rights from Wells Fargo to Ocwen. On February 18, 2014, Steve Antonakes, Deputy Director of the Consumer Financial Protection Bureau, stated at an industry conferencethat his agency would also step up oversight of servicers. SFIG continues to monitor industry efforts in this area and will keep the membership updated with any further developments.

FRIDAY, February 28, 20149:30 a.m. (EST)2128 Rayburn, House Office BuildingClick here to view a webcast of the event as it happens

INTERAGENCY BANKER COMMUNITY REINVESTMENT ACT ROUNDTABLE

WEDNESDAY, March 5, 20148:30 a.m. – 12:00 p.m. (EST)Silver Spring, MDA half-day, banker-only roundtable co-sponsored by the OCC and FDIC that is targeted towards financial institutions serving the greater Washington, DC and Baltimore areas. The roundtable will feature a regional and economic update by the Urban Institute; a summary of feedback received from representatives of community-based organizations through a series of listening sessions held throughout the area; and a facilitated discussion on strengthening partnerships between financial institutions and community-based organizations

SFIG COMMITTEES AND TASK FORCES

SFIG has a number of Committees and Task Forces meeting and working on many topics of interest to the securitization industry. Please email us for more information, including how to join.

SFIG is pleased to share this edition of its newsletter with our members, as well as our supporters in the structured finance community. To ensure that you receive future editions of the newsletter, please visit our website or email us to learn more about membership opportunities.